The South African property market has been that has been resilient against the depression, is slowly starting to show signs of negative growth. Even though the direct market has managed to avoid following the international cycle, recent figures released show that the South African market is starting to catch up by slowing down. Bad news for homeowners looking to sell, but great news for local and foreign investors waiting for things to slow down so they can get value for their cash.

South African real estate markets finally succumbed to negative capital growth, according to the IPD South Africa Property Bi-Annual Indicator, returning -0.8% on a nominal basis over the six months to June 2009.

The Indicator – which comprises complete valuation appraisals for 10 portfolios worth R94.1bn (US$12.5bn) representing two thirds of the IPD South Africa Property Annual Index – shows a stable income return picture, at 4.2%, contributing to a six month total return of 3.4%.

At sector level, Retail and Industrial both recorded 4.1% total return and Offices returned 1.6 %. Capital growth has been appreciably slower than last year, with Retail posting a relatively resilient 0.1%, followed by the Industrial sector’s -0.4% and Offices at -2.7%. Income yields have continued to expand in the three sectors; Retail have moved out to 8.0%, Offices to 8.5%, while Industrial yields are now 9.0%.

Office vacancy rate has risen to 9.8%, more than double the Retail’s 4.1%, while Industrial vacancies ended the first half of the year at 3.7%.Last year, South Africa’s nominal total return was 13.0%, according to the SAPOA / IPD South Africa Annual Property Index. However, this masked the effect the high domestic inflation rate had on property markets. While over the six months to June inflation has receded, its impact remains a significant diluter of performance, with inflation-adjusted total ‘real returns’ for the six months to June at -0.8%.
Stan Garrun, Managing Director at IPD South Africa, said: “While direct property has lagged the international cycle; these figures indicate that South Africa is fast catching up and economic pressures are taking their toll. Re-pricing is taking place and income is under pressure. All sectors are being affected in one way or another. Performance is now well below last year and the stellar average annualised return of 22.4% achieved between 2006 and 2008. Inflation’s receding erosive powers on portfolio returns will be encouraging to both domestic and overseas investors in South African property.”